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comparable to the Local Software in terms of functionality and
utility as of the valuation date. Next, Mr. Reilly performed two
cost approach methods--the constructive cost model (COCOMO) and
the software lifecycle management (SLIM) model.11 Both models
are empirical cost approach models; that is, the development time
and cost of the subject software are estimated by reference to a
large database of actual software development projects. These
models are used by companies to project the costs of various
projects. The COCOMO approach estimates the amount of effort
required to reproduce the software, and the SLIM approach
utilizes a computerized model, which permits the user to estimate
the cost of developing the subject software from a database of
over 3,000 actual software projects. Next, Mr. Reilly performed
two income approach methods. He used the SLIM model to estimate
the cost savings, or income increment, associated with having the
Local Software available during the development of the National
Software. He also applied a lost income method, under which he
estimated the amount of income that would have been lost to HSN
if HSN had not been operational as of the July 1, 1985, startup
date. Mr. Reilly reached an overall valuation conclusion, giving
similar weight to each approach, of $2,900,000.
Mr. Reilly then compared this value to the value of the
License Agreement. Mr. Reilly used the discounted cash-flow
11The SLIM model was developed by Mr. Putnam, petitioners’
rebuttal expert witness.
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